Over the next following weeks, I will be blogging about frequently asked questions regarding employment situations that have come up due to COVID-19. Here is number 1:
What happens when there is a temporary layoff?
First, a temporary layoff occurs when an employee is sent away from work and does not get paid. It is temporary because the employer foresees that the employee will be called back to work. There is no termination of employment.
Can an employer lay an employee off?
Yes, but the employer could be breaching a term and condition of employment.
There is a general unwritten rule in most employment agreements that an employer is not permitted to lay an employee off. However, if the employee’s employment contract contains a specific provision that allows an employer to lay an employee off, then the employer is permitted to do so.
What happens in a layoff when there is an employment contract allowing a layoff?
The employee will have to wait until they are recalled or until the layoff is so long that it becomes a termination. Or the employee can quit. Employees who quit do not get employment insurance benefits, the Canadian Emergency Response Benefit, or severance pay.
Under the Employment Standards Act, a layoff can only last 13 weeks in any given 20 consecutive weeks until it becomes a termination. If the employer continues certain payments or benefits to the employee in a layoff, then the layoff can last up to 35 weeks in any consecutive 52 weeks before it becomes a termination.
Once the layoff becomes a termination, the employee is entitled to notice of termination or payment in lieu of notice, severance pay, and all benefits. Even though the employee did not work during the layoff period, their severance package is based on their regular working wages. Calculating severance pay is not always straightforward.
What happens in a layoff when there is not an employment contract allowing a layoff?
The employee may have a claim for constructive dismissal. Constructive dismissal occurs when an employer unilaterally changes a significant term of employment, without the employee accepting that change. When this occurs, the employee can quit and claim a severance package as if they were terminated outright.
A layoff will become a constructive dismissal in this scenario because the employer has suddenly introduced a new significant term of employment: the authority to lay the employee off.
There are three general ways that an employee can respond when faced with a potential constructive dismissal situation:
Accept the change. In this case, the change becomes a new term in the employment relationship. The employee will also be deemed to accept the change if they do nothing about it.
Reject the change, claim constructive dismissal, and sue for a severance package.
Reject the change by making it known to the employer but continue to work under the original terms of employment.
Under option 3, often called working under protest, it then falls to the employer to determine how to react. If the employer does nothing to the employee and allows the employee to work under the original terms of employment, then the new term will not form part of the employment relationship going forward. On the other hand, the employer may terminate the employee working under protest, and offer new employment to the employee with the new term.
In a layoff scenario, option 3 may not be as effective because even though an employee may protest, the employer will likely continue to put the employee on layoff. The major benefit of rejecting a layoff (even though an employee may not get called back) is to establish that the employee may claim constructive dismissal should there be further layoffs in the future.
Does COVID-19 change how we view layoffs?
Potentially. The biggest potential effect that COVID-19 may have on how the law views layoffs and constructive dismissal is on employees who have been laid off due to non-essential businesses shutting down and unable to provide remote work (or work in general). This could lead to “frustration” of contract.
Frustration of contract occurs when an unanticipated event occurs that makes employment incapable of being performed. Because employment has ended through no fault of either party, no severance should be paid (although in some cases the minimum termination pay and severance pay under the ESA may still have to be paid). Frustration is usually difficult to establish. Even when an employer shuts down for lack of business, the employer still must pay severance to employees. COVID-19 causing that shut down may not be enough for a frustration of contract. The government causing that shut down may be enough. However, as COVID-19 is thought to be temporary, frustration should not occur as employment should be able to resume in the future.
Rights and Obligations in Layoffs are Tricky
Not every situation is alike. All constructive dismissal situations are unique and are generally difficult to establish by an employee. When employers and employees are faced with layoffs, there are a variety of scenarios that could occur. Acting appropriately is vital to protect everyone’s interests.
Jason Wong is a Toronto Employment Lawyer practicing exclusively employment, labour, and human rights law. If you are an employee or employer who has questions about layoffs due to coronavirus, please contact Jason at jason@wongemploymentlaw.com or 647-242-5961.